The Down Under Dollar is Making a Move

Since late July, I have been looking for the Australian dollar to turn lower. Instead, the Aussie has continued to climb. It has risen in ten of the past eleven weeks. As this Great Graphic, created on Bloomberg, these gains have brought the Australian dollar toward a three-year downtrend line drawn off the April 2013 and the June-July highs from 2014.

The downtrend line is found near $0.7850 now, which is a little above the year's high set in April (~$0.7835). The Australian dollar has turned lower, yesterday and today. It is off 1% today, the most in a month. The losses are turning technical indicators like the RSI and MACDs lower.

Initial support is seen a little below $0.7600. It is a retracement objective of the leg up since late-July and the 20-day moving average. Below there is the $0.7520, which is another retracement objective and the objective of a potential double top (~$0.7755 on August 10 and ~$0.7750 on August 16, with neckline near $0.7635). A break could signal a return to those late-July lows near $0.7420.

Australia will report July's employment first thing tomorrow in Sydney. It is a particularly volatile report. After creating a net 7.9k jobs in June, Australia is expected to have grown another 10k jobs in July. This understates the results. Some 38.4k full-time positions were created in June. Proportionate to the US population, it would as if non-farm payrolls jumped almost 540k. Some payback should be expected. In any event, the labor market improvement is not the main concern of the central bank.

The Australian dollar has benefited as investors accepted that interest rates would be lower for longer in the US, Japan, and Europe. Equities, commodities, and emerging market have appealed to investors.

However, yesterday the MSCI World Index of developed equity indices staged key reversal, and there has been additional weakness today. Despite NY Fed's Dudley's remarks, investors are far from convinced that the Fed will hike rates. Since, the start of the week, the probability of a hike next month has risen from less than one in five to one in four. The odds of a rate hike before the end of the year has risen to a little more than 40% from a little less than 38%.

Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum